A new report by Analysis Group answers questions asked two months ago by Energy Secretary Rick Perry about the reliability and market rules of the U.S. electric power grid.
Analysis Group finds it is market forces – primarily low-cost natural gas and flat demand for electricity – that are causing some coal and nuclear power plants to retire, and not state and federal policies supporting renewable energy development.
The report finds that the changing electricity resource mix poses no threat to reliability of the nation’s power system.
Perry launched a 60-day review of “critical issues” on the grid on April 14. National business groups Advanced Energy Economy (AEE) and American Wind Energy Association (AWEA) commissioned Analysis Group to answer independently the questions Perry raised. The Analysis Group report has now been submitted to the U.S. Department of Energy to inform its review.
“Recently, some have raised concerns that current electric market conditions may be undermining the financial viability of certain conventional power plant technologies (like existing coal and nuclear units) and thus jeopardizing electric system reliability. In addition, some point to federal and state policies supporting renewable energy as a primary cause of such impacts,” states the Analysis Group report. “The evidence does not support this view.”
“The transformation now under way in the electric power system is driven primarily by market forces,” said Susan Tierney, senior advisor, Analysis Group, and one of the authors of the report, along with Analysis Group Principal Paul Hibbard. “Low natural gas prices, technology changes, and flat demand for electricity have been putting financial pressure on and leading to the retirement of older, less economic power plants. This is a natural consequence of market competition. The result is a more diverse set of energy resources on the grid that is being capably managed in a way that provides reliable electric power.”
Key findings of the Analysis Group report:
- Market forces: Fundamental market forces – flat demand for electricity, low natural gas prices since the mid-2000s and the addition of significant amounts of highly efficient new gas-fired resources since 2000 – are primarily responsible for altering the profitability of many older, merchant generating assets in the parts of the country with organized wholesale competitive markets. These market fundamentals are producing savings for consumers.
- Lesser factors: Factors such as rapid growth in deployment of advanced energy technologies, and state policies supporting such technologies also contribute to reducing the profitability of less economic assets, but such factors are secondary to market fundamentals in causing financial pressure on merchant plants without long-term power contracts.
- Aging resources: The retirement of aging resources is a natural element of efficient and competitive market forces, and where markets are performing well, these retirements mainly represent the efficient exit of uncompetitive assets.
- Reliability benefits:Many advanced energy technologies can and do provide reliability benefits by increasing the diversity of the system and by providing important reliability services to the grid. The addition of newer, technologically advanced, and more efficient natural gas and renewable technologies is rendering the power systems in this country more, rather than less, diverse.
- “Baseload” is an outdated term: Given the many attributes associated with a reliable electric system, the term “baseload resources” is an outdated term in today’s electric system which depends upon a wide variety of resources to provide essential reliability services and is seeing gas-fired resources and renewable capacity together providing both around-the-clock power and the flexibility to cycle and ramp as needed to meet and sustain bulk power system reliability objectives.
“The electricity system in the United States is stronger than it’s ever been,” said Graham Richard, CEO of AEE. “Thanks to innovation and smart policy, we have a more diverse fuel mix, a more reliable grid, and lower electricity costs. The Analysis Group report highlights how advanced energy technologies are helping to modernize the grid and how grid operators are well equipped to manage this market change. As DOE finalizes its report on reliability, we hope the Department will incorporate these key findings, which reflect the true state of the grid.”
Tom Kiernan, CEO of AWEA, said: “Like DOE, we wholeheartedly agree that reliable and affordable electricity is essential. Analysis Group’s report finds that wind and other advanced energy resources, driven by markets and technological advances, are improving electric reliability and reducing costs. Past dependence on a few fuel sources has given way to a more diverse grid, which is more robust and resilient.”
“We think this analysis will be useful for DOE’s study, and we look forward to working with state and federal policymakers to implement market-based policies that will provide consumers with even more reliable electricity at lower cost,” he added.
In a memo dated April 14 to his chief of staff, Brian McCormack, Secretary Perry directed the Department of Energy to conduct a study that would “explore critical issues central to protecting the long-term reliability of the electric grid,” and to analyze “market-distorting effects of federal subsidies that boost one form of energy at the expense of others,” and to report back in 60 days.
On April 28, business trade groups AEE, AWEA, and SEIA sent a joint letter to Sec. Perry asking that the DOE “initiate a public process,” and that the study “follow standard practice and be conducted in an open and transparent manner,” noting that it is “customary” for agencies developing reports that provide policy recommendations to allow public comment on a draft, prior to the report being finalized. No reply was received.
A DOE spokeswoman told Axios on May 5: “The findings will be released to the public (including stakeholders) once the study is completed this summer. The Secretary looks forward to receiving input from all parties once that occurs.”
On May 16, AEE, AWEA, SEIA, and ACORE held a press briefing on documents each submitted to DOE to inform its study of the electric power system and reliability:
- AEE: Changing the Power Grid for the Better – shows that today’s electric generation mix is more diverse than ever; low-priced gas primarily driving change in resources, followed by flat load growth and competition from renewables; ERCOT and PJM experience shows reliable grid management with high degree of variable renewables and even in extreme conditions.
- ACORE: Energy Fact Check – The Impact of Renewables on Electricity Markets and Reliability – ACORE-produced report covering questions around baseload power and economic impact raised in Secretary Perry’s April 14, 2017 memorandum directing a study to explore critical issues central to protecting the long-term reliability of the electric grid.
- AWEA: Renewable Energy Builds a More Reliable and Resilient Electricity Mix. Grid operators are already reliably integrating large amounts of wind energy, and their studies show they can go much higher. Integrating renewables on the power grid costs less than integrating baseload sources; modern power electronics enable renewables to provide reliability services as well as or better than conventional power plants; and renewables diversify the energy mix, improving economics and resiliency. Renewables are not the primary factor undermining baseload sources – as can be seen by maps of where each is predominately located, cheap natural gas is the primary factor. AWEA also submitted a literature review of over 30 existing research studies by federal agencies, regional grid operators, the North American Electric Reliability Corp. (NERC), and others.
- SEIA: Solar & Renewables Benefit Grid & The U.S. Economy– Solar and renewables provide significant advantages to the national grid in terms of reliability, fuel diversity and national security. This SEIA review highlights multiple studies showing that the existing grid can handle high penetrations of renewable energy to the benefit of ratepayers, grid system operators and system performance.
In their letter transmitting these materials to DOE, the groups concluded: “We believe that, taken together, these reports demonstrate that the U.S. electric power system is more diverse in its energy sources than ever before, and due to the flexible way these resources are now managed, becoming more reliable and resilient as a result.”
The Analysis Group report, Electricity Markets, Reliability, and the Evolving U.S. Power System, is available for download here.
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